Economics Editor, The Age

There is a budget crisis, but it isn’t coming from where the Treasurer is telling us to look.

Mr Hockey is right to say that over the longer term, projected increases in government government spending are unsustainable. He isn’t the first. Labor’s finance minister Penny Wong said it in 2011.

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“Without action to curtail spending, growth in the overall level of government spending under existing programs would over the medium to long term become unsustainable,” she told the business tax summit.

“Fewer people of working age to support an increasing number of older Australians, slower economic growth and an increase in age‐related spending will create substantial fiscal pressures,” she said, just as Joe Hockey is saying now.

But that isn’t the reason the budget is in bad shape right now.

It’s that government revenue isn’t keeping pace the way the way it used to.

Mr Hockey mentioned “spending” or “expenditure” 30 times in his 45 minute scene-setting speech on Tuesday night. He mentioned the word “revenue” once. And that was to observe that the government has to be “careful in the expenditure of every dollar of revenue”.

Yet so far it has been a shortfall in revenue that’s been pushing out the date of a return to surplus rather than a surge in spending.

Government revenue amounted to 23.1 per cent of gross domestic product in 2012-13, much less than the 24.1 per cent than had been forecast only two years previously. Government spending was only a little above the earlier forecast.

Something has broken the traditional relationship between economic activity and government revenue. After the mining boom kicked off in 2002, the Howard government’s revenue shot up to 25 per cent of GDP and never fell below it. If the Coalition had had to cope with 23 per cent of GDP, its finances would have looked awful too.

Among the theories as to why revenue isn’t keeping pace are that we are saving more of our income, that big losses on the sharemarket during the global financial crisis are holding back capital gains tax collections and that mining profits have shrunk as they plough their income into expansion rather than profits.

Labor was caught unawares by the revenue shortfall. In its last few budgets it desperately pushed its big ticket spending promises into the future in the hope that revenue would come good. It hasn’t, and so Joe Hockey is talking about ending the age of entitlement.

But entitlements haven’t suddenly exploded, and the projected increases are long term rather than immediate.

49 comments

We gotta get the profile right L'le Joe..OK so lets try again..a little to the left..slowly..hold it..now give us yer best grimace..don't overdo it Joe, they might get wise..that looks fairly good..still..watch the birdie now..Click..By George he's got it Sir Wally, he's really got it..now once again L`le Joe..where does it pain..

Commenter

Geronimo

Location

Yippee Yi Yo

Date and time

April 25, 2014, 7:06AM

Predictably the coalition is back to it's old tricks of taking from the needy and giving to the greedy.Increasing corporate welfare and reducing services to those most in need.

Now that the election is over all the promises made can now be broken !

When will voters ever learn that you can't trust the conservatives to keep a promise ?

Commenter

Get Real

Date and time

April 25, 2014, 8:23AM

Thank you conservative Australia.Thanks for putting me out of work by destroying manufacturing. Thanks for forcing me into a job market where there are no full time jobs. Thanks for forcing me to retrain without any assistance. Thanks for letting in 200,000 more 457 visa holders to make it harder to find a decent paying job.Thanks for the free trade agreements that will put many more Australians out of work.Thanks for giving me more years to work before retirement.Thanks for cutting health services as I get to the age when I need them.Thanks for doing nothing for working class Australia while helping the rich get richer.

Commenter

I should be grateful...I guess.

Location

Povertyville

Date and time

April 25, 2014, 10:13AM

I should be grateful, you are thanking the wrong people. It was 6 years of labor mismanagement that delivered the bounty that you enjoy. But here's an idea, instead of blaming everybody else like a good progressive, get off your backside and make it happen for yourself. It would involve personal responsibility, another thing detested by the left, but it might work.

Commenter

Pragmatic prince

Date and time

April 25, 2014, 11:18AM

Hey prince when there is no water to drink and nothing to eat only then you realise that money cannot be eaten.

Commenter

Robin Hood

Location

Sherwood Forest

Date and time

April 25, 2014, 12:28PM

This really makes me angry. Obviously the message isn't getting through. Joe needs to budget more spin doctors for his department and acting classes for himself, because people are ridiculing his facial expressions and mocking the government as not working in our best interests! An extra $20-$100million for treasury script writers should surely do the trick, the 66 brain washers working for Scott Morrison have done awesome work. I used to think we were being cruel to refugees, but now I understand we're being kind. People like 'I ShouldBe Grateful' need to understand, once and for all, that if they lose their job it is because of Labor, not new rules on 457 visas. If they can't get a pension it's because of Labor, not because we don't care about people who will most likely die before the next election. If they're disabled, they need to understand it's because of Labor, and with the right attitude they could move to China and then come back to work on a 457 visa, rather than frittering away their life not trying to be abled. They need to understand that good money is being spent by this government to spread the word about how Labor has ruined everything and that's why we should give $1.5 billion to the most polluting complanies in Australia. If you pulled your finger out and BECAME a heavily polluting company or a wealthy pregnant woman, instead of sitting about idly complaining about how you can no longer find work because you can't afford medical treatment, you too could share in the bounty of Australia. On this, of all days, we should be celebrating people who are pointing to the trials and tribulations of our past whilst eagerly building the trials and tribulations of our future.

Commenter

Labor Is Bad

Location

Sloganville

Date and time

April 25, 2014, 12:30PM

@Pragmatic PrinceThank you for setting me straight. You sure told me. Of course you must be right having voted Liberal. I am about to turn 50, have been out of work for ten months. I am not getting any welfare, I am living off savings. I am doing training out of my own pocket as well. I cannot contribute anything to super as I am not working so it is looking more likely that I will have to work until 70 and rely on the aged pension. LNP are the cause. No jobs.I have applied for endless jobs and never receive a reply. Abbott not Labor has just opened the floodgates for 457 visa holders, making it harder to find a job. By your logic I should blame Labor for that. I have a bad shoulder and now my knee is playing up just as the LNP are about to cut funding to health as they have done to education and training. LNP are doing that not Labor.Thank you for your stunning assessment of me below: "instead of blaming everybody else like a good progressive, get off your backside and make it happen for yourself. It would involve personal responsibility, another thing detested by the left, but it might work."As you can see I am not blaming "everybody else", I am blaming the LNP for their lack of vision, their economic vandalism and their incompetence.I'm training at my expense. I am off my backside."like a good progressive" - you have no clue what you mean by that do you? You are just repeating parrot like what all the other conservatives say. 'It sounds good, so I'll repeat it.'Also before you call me a comrade, I vote Independent. I have a conscience.

Commenter

I should be grateful...I guess.

Date and time

April 25, 2014, 12:37PM

... grateful and pragmatic ... Actually on many of these issues such as 457's and manufacturing, both parties are in lockstep, you see it's the gravy train crowd versus the rest of us (and always has been).

Commenter

bg

Date and time

April 25, 2014, 12:44PM

@ Pragmatic Prince: did you not read the article? The problem is that revenue has dropped, not that spending has gone up. "If the Coalition had had to cope with 23 per cent of GDP, its finances would have looked awful too."

Yes, those of us who aren't already obscenely wealthy should be grateful to our current government for putting us in our rightful place.

Commenter

Robert

Location

Canberra

Date and time

April 25, 2014, 1:37PM

It is kind of sad when a True Believer illustrates the capacity of its vocabulary in one demonstration of Friary Verbiage.